Shell lays out plan for 1,000 more job cuts

Published 6:00 pm, Saturday, February 6, 2010

Following a sweeping reorganization in 2009, Royal Dutch Shell will cut an additional 1,000 jobs across its global operations in a bid to reduce costs by an another $1 billion.

The impact on the company's operations in Houston, where Shell employs roughly 13,000 people, was not immediately clear. A company spokesman said it was too early to say which regions would be affected.

Shell cut 5,000 jobs, or 10 percent of its global work force, last year under a reorganization plan called Transition 2009. Job losses in the Houston area were expected to be in the "hundreds," company officials have said.

But Shell CEO Peter Voser said this week that, while the company has made progress in becoming more competitive, more needs to be done amid an economic backdrop that remains challenging.

"We are not assuming that there will be a quick recovery, and the outlook for 2010 is uncertain," he said in a statement, along with the release of the company's fourth quarter earnings.

Net income of $1.96 billion in the fourth quarter compared with a loss of $2.81 billion a year ago.

"Our fourth quarter 2009 results were impacted by the weak global economy. Oil prices have increased compared to a year ago, but gas prices and refining margins have declined sharply, because of weaker demand and high industry inventory levels," Voser said.

Shell has placed 15 percent of its global refining capacity under review with a goal of having operations in fewer, more profitable markets. Many of the 1,000 additional job cuts are expected to come from the downstream division, which includes refining and marketing operations.

In early 2010 Shell announced plans to close the 130,000-barrel per day Montreal East refinery in Canada. Reviews of facilities in Costa Rica, Panama, New Zealand and Sweden are still under way, along with the proposed sale of refineries in the United Kingdom and Germany, the company said.

To lower costs, Shell also has reduced its 2010 capital spending budget to $28 billion from $31 billion in 2009.

But the company said it will freeze its dividend in 2010 at current levels.

In recent days, other major oil companies have reported sharply lower earnings as huge declines in their refining businesses ate into the bottom line. Exxon Mobil Corp., the nation's largest oil company, posted a fifth straight drop in quarterly profit Monday to $6.05 billion. Chevron Corp., the second-largest U.S. energy company, reported a 37 percent drop in earnings to $3.07 billion. Meanwhile, Houston's ConocoPhillips, the third-biggest, reported fourth-quarter profit of $1.22 billion after posting a record loss a year earlier.

Amid economic headwinds in 2009, oil and gas companies took steps to rein in costs and streamline operations.

ConocoPhillips cut 4 percent of its work force in 2009 and put $10 billion in assets on the block to pay debts. BP shed more than 7,000 jobs worldwide under an ongoing turnaround, and major oil field services firms like Schlumberger and Halliburton eliminated thousands more jobs last year.

At Shell, Voser, after replacing CEO Jeroen van der Veer in July, also set about the slim down the European oil giant's structure, which he said had grown too complex.

Under Transition 2009, he merged the company's three upstream businesses — known as exploration and production, gas and power, and oil sands — into two new units called Upstream Americas, run from Houston, and Upstream International, run from Europe.

The program expanded the company's downstream division — refining, marketing and chemicals — to include energy trading and alternative energy, excluding wind, which was added to the upstream division. And a new division called projects and technology was set up to oversee all major projects for the upstream and the downstream divisions.

Transition 2009 also cut Shell's senior management ranks by 20 percent to 600 positions. Under a separate iniative, the company also has been transferring support jobs in finance and other functions from Houston and elsewhere to lower-cost countries like India and the Philippines to reduce costs.

Voser said streamlining efforts helped reduce costs by some $1 billion in the fourth quarter 2009, and by over $2 billion in 2009 compared to 2008.

Elsewhere, Shell said exploration performance in 2009 was strong with 10 notable new finds and particular success in North American and Western Australian gas. But full-year production fell 3 percent to 3.2 million barrels of oil equivalent per day.